U.S. Wage Hikes to Impact a Third of Walmart Stores

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U.S. Wage Hikes to Impact a Third of Walmart Stores
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4 min read
This story originally appeared on Reuters

Minimum wage increases across the United States will prompt Wal-Mart Stores Inc (WMT.N) to adjust base salaries at 1,434 stores, impacting about a third of its U.S. locations, according to an internal memo reviewed by Reuters.

The memo, which was sent to store managers earlier this month, offers insight into the impact of minimum wage hikes in 21 states due to come into effect on or around Jan. 1, 2015.

These are adjustments that Wal-Mart and other employers have to make each year, but growing attention to the issue has expanded the scope of the change. Thirteen U.S. states lifted the minimum wage in 2014, up from 10 in 2013 and 8 in 2012.

Wal-Mart spokeswoman Brooke Buchanan said the company was making the changes to "ensure our stores in the 21 states comply with the law."

For Wal-Mart, the biggest private employer in the United States with 1.3 million workers, minimum wage legislation is not a small thing. Its operating model is built on keeping costs under close control as it attracts consumers with low prices and operates on tight margins.

In recent years, it has been struggling to grow sales after many lower-income Americans lost jobs or income in the financial crisis.

The Wal-Mart memo shows that there will be changes to its pay structure, including a narrowing of the gap in the minimum premium paid to those in higher skilled positions, such as deli associates and department supervisors, over lower grade jobs.

Wal-Mart will also combine its lowest three pay grades, which include cashiers, cart pushers and maintenance, into one base rate.

The changes appear in part to be an effort to offset the anticipated upswing in labor costs, according to a manager who was implementing the changes at his store.

"Essentially that wage compression at the upper level of the hourly associate is going to help absorb that cost of the wage increase at the lower level," said the manager, who spoke on condition of anonymity.

More change to come?

Wal-Mart’s critics – including a group of its workers backed by labor unions - say the retailer pays its hourly workers too little, forcing some to seek government assistance that effectively provides the company with an indirect taxpayer subsidy. Labor groups have been calling for Wal-Mart, other retailers and fast-food chains to pay at least $15 an hour.

Wal-Mart has indicated it may make more changes to its compensation structure in 2015. Chief Executive Doug McMillon recently said the company would improve opportunities for workers, including getting the roughly 6,000 people who make the federal minimum wage of $7.25 an hour at its stores off that rate.

"In the world there is a debate over inequity, and sometimes we get caught up in that," he told TV presenter Charlie Rose in an interview this month. McMillon said he would take steps to ensure the company is "a meritocracy, an opportunity for people to do more."

The state minimum wage changes range from a 17 percent increase in South Dakota to $8.50 to a modest rise of 2 percent to $8.05 in Arizona. They will also impact many of Wal-Mart's big retail rivals, such as Target Corp (TGT.N), and fast-food chains like McDonald'sCorp (MCD.N).

A Target spokeswoman said she could not provide details on how many employees might be impacted by the changes on Jan. 1. McDonald's could not be immediately reached for comment.

Wal-Mart estimates its average full-time hourly wage is $12.92, and says that it pays competitive wages and offers its employees ample opportunity for advancement.

Edward Jones analyst Brian Yarbrough said it is tough to estimate the cost impact of the minimum wage changes without knowing the number of Wal-Mart employees affected. While many employees might start out at the minimum rate, they advance to higher pay rates over time, he noted.

Wal-Mart said last month that investment in wages and higher health care costs drove a 3.5 percent increase in operating expenses in its most recent quarter. Wal-Mart is unlikely to cut staff or reduce hours to keep those costs in check, given that it has made a renewed push to improve service in its stores, Yarbrough said.

(Reporting by Nathan Layne; Editing by Michele Gershberg and Martin Howell)

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